Higher freight rates, delivery delays frustrate buyers

By Yoke Wong
Published: Wednesday, 17 May 2017

Container shipping costs have been increasing since end-2016 and the uptrend is expected to stay in the near-term. Despite higher freight rate, industrial minerals market participants reported delays and limited vessels availability.

Rising freight rates over the past few months amid reduced vessel availability have delayed minerals shipments and many are expecting the logistical disruptions to continue.  

Container shipping costs from China have been increasing almost on a monthly basis since the end of last year, with some shippers facing difficulty securing vessel space for delivery, a number of traders and consumers told IM.

As China is one of the largest industrial minerals suppliers in the world, the higher freight rate has contributed to an increase in cost across a number of minerals, including fluorspar, calcined bauxite, brown fused alumina and magnesia.

According to one fluorspar buyer in India, the shipping cost from Southern China to India’s Nhava Sheva for a 20-feet container (fcl), which has a maximum weight-load of about 27 tonnes, has more than doubled to $600/fcl in May, compared to $250-300/fcl in April.     

While rates from China to Europe were last quoted at $1,150-1,200/fcl for delivery in May, up 20-30% from the previous month, a Europe-based minerals distributor said.

Rising freight rate was mainly due to "a combination of a shortage of containers and really rapid Chinese import growth," said analyst James Frew from London-based shipping consultant Maritime Strategies International Ltd (MSI).

The uptrend for the past five months followed depressed freight rates over the past few years as vessel supply outstripped weak shipping demand. But the bankruptcy of South Korea’s Hanjin Shipping, the world's seventh-largest container carrier, in August 2016 removed a large numbers of vessels from service, disrupting trade routes and contributing to higher freight rates.  

Although Frew expects the rapid price increase to unwind quickly, in general, MSI expects freight rates to trend up in the medium term.

Lower freight rate subject to availability

Some market participants have secured lower freight rates at $900-950/fcl from China to Europe for 2017 by agreeing to long-term contracts with big freight forwarding companies.

However, container space at these lower rates is subject to availability as some shipping companies prioritize delivery of higher-value cargo over cheaper minerals, the Europe-based distributor and two consumers said.   

"These lower contract rates are subject to space and container availability - this is why you hear containers are cancelled or not available, because the small Chinese and foreign traders book with agents who re-sell this space," the distributor said.

"It’s the same like bucket travel shops overselling seats on flights," he added.  

One ceramic producer agreed: "Containers are difficult to find...contracts are  not honoured, it's a very common case."

Longer lead-time

Some buyers are reporting longer delivery times due to shipping vessels adding stops en-route to pick up cargoes booked at a higher rate.  

As a result, the average lead time from Asia to the US has extended to between six and eight weeks, instead of the usual four to six weeks, one US-based fluorspar consumer told IM.  

"They are trying to get the higher rate, they are putting through different routes to get more lucrative cargoes," the consumer said.  

"The shipping company is not accountable to deliver on time, there is no financial penalty…. It’s very frustrating, we are the ones who bear the burden," he added.

IM attempted to contact some shipping companies for comment but none were available for comment by the time of publication.

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